Equities
Forecasting the Distribution of Option Returns
December 12, 2018
We propose a method for constructing conditional option return distributions.
Market Risk and Efficiency
A Framework for Identifying Accounting Characteristics for Asset Pricing Models, with an Evaluation of Book-to-Price
November 7, 2018
We provide a framework for identifying accounting numbers that indicate risk and expected return.
Alternative Investing
Optimal Currency Hedging for International Equity Portfolios
October 18, 2018
We explore currency exposures in international equity portfolios by decomposing the optimal currency portfolio into a “hedge portfolio,” which minimizes equity volatility, and an “alpha seeking portfolio” based on the well-documented currency styles of value, momentum and carry.
Equities
Characteristics Are Covariances: A Unified Model of Risk and Return
October 18, 2018
We propose a new modeling approach for the cross section of returns that helps determine whether excess returns to factors are driven by compensation for risk, or an anomaly effect.
Equities
Empirical Asset Pricing via Machine Learning
October 17, 2018
We show how the field of machine learning can be used to empirically investigate asset premia including momentum, liquidity, and volatility.
Tax Aware
The Tax Benefits of Relaxing the Long-Only Constraint: Do They Come from Character or Deferral?
October 15, 2018
Are there tax benefits from relaxation of the long-only constraint? If so, what are the sources? To answer these questions, we decompose the total tax benefit (or liability) of a strategy into two components.
Alternative Investing
Risk Adjusted Performance of Middlemen in Housing Markets
October 10, 2018
Do housing market asset flippers outperform? We study the risk-adjusted returns of asset flippers operating in the housing market of Los Angeles County with respect to both investments in the U.S. stock market and in a passive mutual fund tracking a representative U.S. REIT index.
Derivatives
Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility
September 27, 2018
Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we analyzed the relationship between long volatility performance (buying options) and contemporaneous changes in volatility.
Trading
Trading Costs
August 23, 2018
Using live trade data from a large institutional money manager over a 19-year period, we find actual trading costs to be an order of magnitude smaller than previous studies suggest.
Asset Allocation
Long Horizon Predictability: A Cautionary Tale
June 18, 2018
We show there is much less evidence of long-horizon return predictability than existing research suggests, casting doubt over claims about forecasts based on stock market valuations and factor timing.